Aditya Birla Group benefited more due to merger with Vodafone: IiAS

Industry:    March, 2017

The recent merger between Idea and Vodafone has not benefited the latter as much as the AVBirla group, according to Institutional Investor Advisory Services India Limited (IiAS), a leading proxy advisory firm.

The deal favours the AVBirla group, which gets equal voting rights despite being relatively smaller, and an option to buy out equity from Vodafone at a pre-determined price. The AVBirla group also gets Chairmanship of the Board. Vodafone plc’s shareholders should be concerned that they drew the short straw, the IiAS research said.

Recently announced Idea-Vodafone merger is set to create India’s largest telecom company that would directly challenge rivals like Jio and Airtel going ahead. The equity valuation of the entity is pegged at Rs 94,600 cr. It gets the Aditya Birla (AVBirla) group to pole position and saves Vodafone plc from having to consolidate the India business on its balance sheet, the research added.

Vodafone has given away more in this deal. Vodafone is larger than Idea Cellular, and while one may argue that the gap is narrowing, Vodafone should have had a stronger position in this transaction. In allowing an equal relationship with Idea, Vodafone should have commanded a premium and better quality of control. But, the deal contours considerably favour Idea Cellular, the research added.

“Vodafone has been generous in other ways too. Vodafone has allowed the AVBirla group a three-year period (the ‘standstill’ period) to equalize the equity stake, yet allowed it equal voting rights before stake equalisation. During the ‘standstill period’, until equalisation is achieved, the voting rights of the additional shares held by Vodafone will be restricted and votes will be exercised jointly under the terms of the shareholders’ agreement. While this may be conducive to a harmonious merger, it has short-changed Vodafone plc’s shareholders of their voting rights,” according to the research.

In ceding most of its rights, Vodafone has stayed true to its tagline: “Power to you”. But while this is good for its customers, it is not good for its own shareholders, IiAS research added.